Although a foreclosure and short sale will both affect your credit, they are different. A foreclosure will appear on your credit report differently from how a short sale would appear. Do not let your lender report your short sale as a foreclosure.
By law, every lender is required and must report the true and accurate circumstances of a foreclosure or short sale. A short sale will be reported as “settled for less than full balance” to clarity that the transaction was indeed a short sale. However, sometimes it may be reported as “settled for less than full balance, chapter 9.″
If “Chapters 5, 8 or 9” is stated in the report, it means that the sale was associated with a foreclosure. Although the short sale portion is stated correctly, the “chapter 5, 8, or 9” portion of the report will not pass the automated underwrite test for a conventional loan. This will affect your approval for a new loan after the completion of the short sale.
If this happens to you, address the issue to your lender that was involved in the short sale. Provide your lender with documents, from the title company, to prove that the sale was only a short sale and that the report needs to be corrected.
We’ve successfully completed more short sales since January 2010 than any other realtor in Dallas area, resulting in favorable outcomes for our clients. Contact us if you have any questions: 972-342-0011